Are you looking to buy an existing business? You should be on the lookout for common challenges to buying an existing business and how to overcome them.As seen in the recent post, Buying an Existing Business: 12 Factors to Consider, there are great advantages to buying an established business, with brand recognition and existing customer base at the top of the list. However, there are also some challenges that, with forethought and planning, can be overcome.
1. Not Doing Your Homework
Due diligence is essential to determining whether to buy a business. You need to make sure you have done a thorough examination of the business finances, understanding its cash flow, customer base, available assets, and employees. Not doing thorough due diligence can lead to post-purchase surprises that can have adverse consequences on your finances and ability to grow and strengthen the business.
Due diligence may involve using external consultants and advisors. When Rick McVey was thinking of buying his upscale florist business, he knew he needed some help. “I did my due diligence, and hired an attorney, accountant, financial advisor and consulting company (hired to value the shop),” McVey said. “I believe that it’s always best to hire people who know more than you, and this assembled group really helped get my business moving forward. Aspects of business ownership that I didn’t think about were covered by the professionals I chose.”
2. Ignoring Culture
You are not just buying the business; you are also buying the workplace, the vibe, and, in many cases, the employees. If there is a strong existing culture in place, you have two options. You can try to change it you can choose to embrace it. If the business is not working the way you believe it should, then implementing change is not only appropriate, but necessary.
Sometimes, embracing the existing culture means keeping on existing employees. McVey, for example, kept on two long-tenured employees from the previous owners and has since expanded to seven total employees.
Bringing on new staff has its own risks, with the time it takes to hire, onboard, and train new employees. Having a mix of new and old is often a smart way to go.
3. Not Understanding Why
If you are going to buy a business, you need to truly understand why the current owners are selling. Is it due to a change in their lifestyles, such as a desire to retire, or a growing family? Is it something financial? Is there a new competitor who has taken away market share?
Your due diligence can uncover some of these underlying issues. So, too, can talking to some of the key or long-term customers. These anecdotal conversations can reveal key information you can leverage in order to be successful.
4. Overextending Financially
It can be exciting to think about owning your own business, which can cause you to leap into financial commitments you are not really ready to meet. Relying on savings and credit cards can be a risky endeavor to your financial well-being. You want to be sure, at a time when commercial lending is tight, that you have good options.
At Benetrends, we help business owners with a great alternatives to conventional funding. If you have an IRA or 401(k), it can be rolled into the business, tax-deferred and penalty-free, to purchase a business or cover operating costs.
To learn more about how Benetrends can help make smart decisions when buying an existing business, watch the webinar: How To Use Your Retirement Funds To Buy A Franchise Or Business.